Russia, Uzbekistan light flame at major gas field

BUKHARA, Uzbekistan Nov 29 Russia's LUKOIL
(LKOH.MM) officially started up output from a major gas field in
Uzbekistan on Thursday in a project expected to contribute one
fifth of the Central Asian state's gas output.

Russia's First Deputy Prime Minister Sergei Ivanov and top
Uzbek and LUKOIL officials toured the Khauzak deposit, tucked in
a barren Uzbek steppe near the Silk Road town of Bukhara, after
lighting a symbolic torch at the site.

Russia, the world's largest natural gas producer and a major
supplier to Europe, depends on gas imports from Central Asia
where it pays below-market prices.

The two nations used the opportunity to highlight
increasingly close ties after years of chilly relations.

"Uzbekistan's president once again reassured us that
Uzbekistan's long-term foreign policy, both in politics and
business, is closely tied to Russia, and that this policy is not
susceptible to sudden changes," Ivanov told reporters in
Tashkent on the eve of the Bukhara ceremony.

Khauzak is part of the wider Kandym-Khauzak-Shady-Kungrad
project, developed jointly by LUKOIL, with a 90 percent stake,
and Uzbek state energy company UzbekNefteGaz which controls the
rest. A 2004 production sharing agreement will last 35 years.

Partners in Khauzak, near the Turkmen border in
south-western Uzbekistan, share output on a parity basis at the
field which technically started production earlier this month.

Khauzak is due to reach maximum capacity by 2012-2013 and
produce more than 11 billion cubic metres of gas, or about one
fifth of Uzbekistan's current total natural gas output.

LUKOIL said Khauzak is the biggest investment project in
Uzbekistan with a total of $350 million already committed. Total
investments are expected to exceed $3 billion, it said.

Operators plan to drill over 160 production wells at the
field, and build over 1,500 km (932 miles) of pipelines as well
as a gas processing plant with a capacity of 8 bcm per year.

In 2006, Uzbekistan produced 62 bcm of gas and exported 12.6
bcm, including 9 bcm to Gazprom. Central Asia's top natural gas
producer, Turkmenistan, expects to produce about 80 bcm of gas
this year.

Russia is the main export destination for Uzbekistan, whose
pipelines are controlled by Gazprom. But Uzbekistan is exploring
new exploring routes, and earlier this year agreed to build a
new pipeline to China at an unspecified date.
(additional reporting by Tanya Mosolova in Moscow; Writing by
Maria Golovnina in Almaty)